What Landlords Should Know About Rental Deposits in Ontario

Remax - Marketing
Mar 6
3 min read

Understanding rental deposit rules in Ontario is essential for landlords to comply with the Residential Tenancies Act (RTA) and avoid legal issues. In Ontario, rental deposits are regulated, and landlords must follow specific guidelines when collecting them. This guide will cover everything you need to know about rental deposits in Ontario, including what’s allowed, what’s not, and how to handle them properly.

1. What is a Rental Deposit?

A rental deposit, often referred to as a security deposit in other provinces, is a sum of money that a landlord collects from a tenant before they move in. In Ontario, this deposit is strictly regulated and can only be used for last month’s rent (LMR)—not for damages or security purposes.

Key Points About Rental Deposits in Ontario:

It cannot be used for damages or as a general security deposit.
The amount cannot exceed one month’s rent.
It must be applied to the last month of the tenancy.

2. How Much Can a Landlord Collect as a Rental Deposit?

Ontario landlords can only request a deposit equal to one month’s rent or one rental period if rent is paid weekly. Additional deposits, such as security deposits for damages, are not allowed under Ontario’s tenancy laws.

Example:

If the monthly rent is $2,000, the landlord can request $2,000 as the last month’s rent deposit.
If rent is paid weekly at $500 per week, the deposit can be $500 (one rental period).

3. When and How to Collect a Rental Deposit?

Landlords can collect the rental deposit before the tenant moves in as part of the lease agreement. The deposit should be clearly stated in the Ontario Standard Lease to ensure transparency.

Best Practices for Collecting Deposits:

✔️ Always provide a written receipt for the deposit.

✔️ Clearly outline deposit terms in the lease agreement.

✔️ Avoid asking for any additional deposits that are not legally permitted.

4. Do Landlords Need to Pay Interest on Rental Deposits?

Yes. Under Ontario’s tenancy laws, landlords must pay interest on the last month’s rent deposit annually, based on the Ontario rent increase guideline for that year.

Example Calculation (Based on a 2.5% Rent Increase Guideline):

If the last month’s rent deposit is $2,000, the landlord must pay $50 in interest after one year.
The interest amount is usually deducted from the rent owed.

5. What Happens If Rent Increases?

If a landlord increases the rent, they can request a top-up on the last month’s rent deposit to match the new rent amount. However, this must be done in accordance with Ontario’s rent control laws and proper notice must be given.

6. Are Damage Deposits Allowed in Ontario?

No. Unlike other provinces, Ontario does not allow security or damage deposits. Landlords can only request a last month’s rent deposit and cannot hold additional funds for repairs or potential damages.

How Can Landlords Protect Their Property Without a Security Deposit?

Tenant Screening: Conduct thorough ID verification and background checks.
Lease Agreements: Clearly state the tenant’s responsibility for damages.
Move-In Inspections: Document the property’s condition before move-in.

7. Returning the Rental Deposit: What Landlords Should Know

The deposit must be applied to the last month’s rent.
If a tenant moves out early, the landlord cannot keep the deposit unless agreed upon.
Any interest owed should be paid to the tenant.

Final Thoughts

Ontario has strict rental deposit laws that landlords must follow. To stay compliant:

✅ Only collect a last month’s rent deposit (not a security deposit).

✅ Pay annual interest on the deposit as per Ontario’s rent guidelines.

✅ Request a top-up if rent increases, following legal procedures.

By understanding and following rental deposit rules in Ontario, landlords can ensure a smooth rental experience, avoid legal disputes, and protect their investments.